National Automobile Dealer Arbitration Program (NADAP)

More than 90% of Canada's automobile dealers participate with their manufacturers in the National Automobile Dealer Arbitration Program (NADAP).

The program was loosely modelled on the industry’s successful consumer arbitration program, the Canadian Motor Vehicle Arbitration Plan. NADAP, however, is aimed at resolving the disputes that arise from time-to-time between the manufacturers and their most significant business partners – the retail dealers.

Roughly 90% of Canada’s automobile dealers have agreed to participate with their manufacturers in NADAP. Since its inception in 1997, NADAP has handled just over 70 cases – in line with predictions that the program would likely only have a dozen cases or so a year, as both manufacturers and their dealers are committed to working out their differences before the need for NADAP arises.

All NADAP cases are coordinated through the offices of ADR Chambers, a professional, independent arbitration and mediation firm in Toronto. ADR Chambers receives requests to initiate the NADAP process from automobile dealers, processes the request and through mediation and, if necessary, arbitration resolves the dispute.

When NADAP was established in 1997, it was set up for an initial 5 year term with the dealers signing implementation agreements with their respective manufacturers. In order to fairly assess the effectiveness of the program, neither side could terminate their involvement in NADAP during that time. Over the course of 2001, with the initial 5 year term set to expire, the dealers and manufacturers reviewed NADAP together and improved and updated the program to reflect the new business realities. New NADAP Rules for Dispute Resolution were developed and adopted in December 2001, for implementation January 1st, 2002. It is anticipated that the program will be reviewed by both parties again in 2006, as the second 5 year term of the program is set to expire.

As indicated above, the purpose of NADAP is to settle any of the following disputes between a manufacturer and its dealers involving:

	The interpretation/application of the Dealer Sales and Service Agreement(s) and amendments for that Dealer.
	The termination of the Dealer Agreement based on a Dealer, or Dealer employee conviction, that will hurt the manufacturers’ or Dealer’s reputation or interest.
	The reasonableness of the length of a cure period provided by the Manufacturer in light of the dealer deficiencies to be cured.
	A refusal of the Manufacturer to reasonably provide prior approval to a Dealer’s request to sell or transfer by succession his/her Dealership interest including:
	- The reasonableness of the Manufacturer’s conditions and written standards, and any specific requirements set for that new dealer, and if so, does the new dealer meet them; - Whether the new dealer is unwilling to be bound by the terms of the existing Dealer Agreement; - Whether the dealer or new dealer fails to cure an existing Dealer default; - Whether the demographic or economic factors set by the Manufacturer for the continued operation of the dealership by the proposed successor, are reasonable. If so, the dealer can continue to operate the dealership or the Manufacturer can close the dealer-point until economic or demographic factors support its re-opening.
	Failure of the Manufacture to approve the sale or transfer of the Dealer interest where the Dealer can show that the Manufacturer knew for a considerable time that the sale or transfer had occurred.
	The termination of the Dealer Agreement based on the adequacy of the Dealer’s line of credit/working capital.
	Whether a Dealer owes money to a Manufacturer, or vice versa, and the length of time for payment. Where a Dealer’s failure to pay funds is grounds for termination of the Dealer Agreement, the Dealer Agreement can be terminated. If the termination is set aside, and the Arbitrator finds that the Dealer owes funds to the Manufacturer, the Dealer must pay the funds to be reinstated as a dealer.
	The termination of the Dealer Agreement for failure to resume dealership operations within a reasonable time following its closure for more than 7 days where the closure was beyond the Dealer’s control.
	The proposed appointment of a new abutting dealer-point or relocating of an existing dealer.
	The Manufacturer’s termination, refusal to renew or extend, without cause the Dealer Agreement including the awarding of damages by the Arbitrator for such wrongful termination or refusal.

When a Manufacturer/Dealer dispute arises, the parties are to first try and settle it using the Manufacturers own dispute resolution process and if no such process exists or attempts to resolve the problem have been unsuccessful, the process would then move into NADAP mediation. The only disputes that can go to court are those that do not qualify for NADAP.

Since its inception, NADAP has admirably addressed the concerns of both parties. Over 70% of the disputes are resolved by mediation, usually within 30 – 60 days and at minimal cost. This compares quite favourably to the adversarial, costly and time-consuming court alternative.